With global crude oil prices hitting the psychological barrier of $100 a barrel, the government has begun a desperate exercise to bail out the bleeding oil marketing companies with a solution that is acceptable to its allies.
The government is exploring all options ranging from an excise duty cut to a marginal hike in the prices of petrol and diesel. The Indian crude basket touched $92.29 a barrel on Tuesday.
Petroleum Minister Murli Deora told newsmen that the group of ministers (GOM) would consider all options available on the issue by the end of the month. "Price hike is not the only solution. Others like an excise duty cut on auto fuel, as suggested by Left, are also being considered... My endeavour will be to get a decision this month," he said on Thursday. The GoM, which is expected to meet next week, will make recommendations to the Cabinet that will take a final decision. The prices of petrol and diesel were last reduced by Rs 2 and Re 1 a litre in the middle of February 2007, with the average price of crude around $55 a barrel.
As per the current estimates, petrol is being sold Rs 9 per litre below the international price parity, while diesel faces under recovery of Rs 10.90 a litre. Liquefied petroleum gas is sold Rs 331 below per cylinder, while the under recovery in kerosene is Rs 19.89 a litre. The under recoveries for the current financial year have now ballooned to Rs 75,000 crore at current prices. The government would compensate the oil marketing companies through oil bonds to the extent of 42.70 per cent of their under recoveries, while upstream companies would share one-third of the burden. Inspite of these measures, the revenue loss of the oil marketing companies would still be in the vicinity of Rs 18,000 crore.
An increase of Re 1 a litre in petrol price would cut under-recoveries by Rs 90 crore a litre and the same on diesel would slash the loss by Rs 360 crore a month. If the government increases kerosene price by the same amount, losses would come down by Rs 95 crore per month and if LPG prices were raised by Rs 10 a cylinder, they would come down by Rs 58 crore per month. A reduction in excise duty by Re 1 per litre on petrol and diesel would reduce the under-recoveries of oil companies by Rs 1,380 crore and Rs 5,270 crore respectively.
The GoM, headed by external affairs minister Pranab Mukherjee, includes Defence Minister AK Antony, Finance Minister P Chidambaram, Railways Minister Lalu Prasad, Road Transport and Shipping Minister TR Baalu, Agriculture Minister Sharad Pawar and Petroleum Minister Murli Deora.